Understanding 401(k) Plans

Questions about the future of the Social Security system continue to surface. As a result, interest in employer-sponsored retirement plans and other retirement investment options increases. But the restrictions and rules associated with various defined benefit plans such as 401(k), 403 (b), and 457 plans can be confusing, and these plans have risks of their own. The authors explore these plans and explain the need to view retirement savings as only one part of a portfolio.

JEL classification: G11, G20, G29

Key words: asset, allocation, savings, taxes, pension, retirement

The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.